The Case for an HSA

​Everyone is looking for tips and tricks to pay less in taxes and make the most of their money. A health savings account (HSA) is one of our favorites!  It is the only Triple Tax-Free account that allows you to save and plan for retirement.  

HSAs are  versatile planning tools that are often overlooked and misunderstood.  They are triple tax advantaged savings and investment accounts intended to be used for healthcare expenses.

The Key Benefits:

• Triple tax-free when used for qualified health expenditures!  
  • Contributions are tax-free; they reduce your taxable income just like your 401k contributions.
  • Your account balances grow tax-free. Yes, they can be invested just like your 401k.
  • Withdrawals for qualified health expenses are tax-free. (Unlike your 401K!)
• Your HSA travels with you.  Unlike an FSA (flex spending account), your HSA does not have to be “spent” within a defined time period.  If you change jobs, retire or just take a sabbatical, the HSA is yours!
• When you reach retirement age, the account can be used like an IRA for non-healthcare expenses.  Taxes are owed for these withdrawals.  If you continue to use the balance for healthcare expenses (which tend to go up in retirement) those withdrawals continue to be tax free.
• Your employer may choose to make contributions to your HSA, depending on your benefits program.

Eligibility & Contribution Limits

An HSA is available to anyone with a High Deductible Health Plan (HDHP) and no other coverage, until they apply for Medicare.  A health plan is a qualified HDHP for 2022 if the deductible exceeds $1400 for an individual or $2800 for a family.

There are annual limitations on contributions to an HSA.  For 2022 the maximum contribution for an individual is $3650 and for a family it is $7300.  There is a $1000 limit for catch-up contributions for those 55 and older.  For more on eligibility and contributions go to IRS.gov/publications/p969

HSA Strategies

As we mentioned above, the HSA is versatile.   You can choose whether to reimburse yourself for current medical expenses.   You have the option to wait and use the funds when you may need them more (i.e. retirement, job loss, time off).  You just need to make sure to save the receipts for qualified health care expenses for which you reimburse yourself from your HSA funds.

Your HSA can be invested in stocks, bonds, ETFs, and mutual funds.  If you plan to use your HSA for current medical expenses, you probably want to keep the funds in cash or a money market fund.  If your plan is to use the account for expenses down the road, then a growth-oriented asset allocation may be appropriate.

Using an HSA in retirement has very important benefits.  Most 65-year-old couples retiring now can expect their retirement healthcare costs to fall between $156,208 and $1,022,997.  Where a couple may fall within this range may be affected by the state in which they retire, coverage choices, and chronic health conditions.  Funding these expenses with tax free dollars frees up your other remaining retirement assets for more discretionary spending in retirement.  

In addition, you can reimburse yourself in retirement for expenses you incur now!  (Keep your receipts!)

Good health is your most important asset.  It is priceless.  We know that staying healthy, keeping fit, eating well, and getting good sleep positively affect our health.  The better your health in retirement the more likely you will spend less on healthcare.  However, there are no guarantees and hedging with an HSA provides some tax relief in the accumulation years and more resources available to spend in the decumulation years.

Feel free to contact Jenifer with any questions.